Two new topics are on the agenda for small businesses: changes to the HM Revenue & Customs off-payroll working rules (commonly known as IR35) and the government’s plans to introduce mandatory e-invoicing from 2029.
While neither represents an overnight change for most businesses, both are part of a wider move towards increased compliance, digital reporting and tighter tax administration. Here’s a practical overview of what business owners and contractors should be aware of.
IR35: What’s changing?
IR35 rules were originally introduced to tackle “disguised employment” — situations where someone works like an employee but is paid as a sel-employed contractor.
Since the private sector reforms introduced in 2021, medium and large businesses engaging contractors have generally been responsible for determining a contractor’s IR35 status and operating PAYE where appropriate.
The key update coming into effect from April 2026 relates to company size thresholds that are used to determine whether a business falls within the off-payroll rules. From 6 April 2026, a company will generally qualify as “small” if it meets at least two of the following:
- Turnover of £15 million or less
- Balance sheet total of £7.5 million or less
- 50 employees or fewer
This increase in thresholds means some businesses that currently fall within the IR35 regime may move outside of it from April 2026. For those businesses, responsibility for assessing IR35 status would shift back to the contractor’s limited company, rather than the client.
What does this mean in practice?
For contractors, this could create more opportunities for genuinely outside-IR35 engagements, particularly with growing businesses that now fall below the revised thresholds.
However, the underlying IR35 legislation itself has not changed. Employment status will still depend on factors such as:
- Level of control
- Right of substitution
- Mutuality of obligation
- Actual working practices, not just the written contract ([GOV.UK][1])
Essentially, don’t assume that the threshold changes remove IR35 risk entirely. Proper contract reviews and clear working arrangements are still key.
Mandatory e-invoicing confirmed for 2029
Alongside the IR35 updates, the government has now confirmed that mandatory electronic invoicing will be introduced from April 2029 for VAT invoices relating to:
- Business-to-business (B2B) transactions
- Business-to-government (B2G) transactions
This forms part of the wider digitalisation strategy being developed by HM Revenue & Customs and the Department for Business and Trade.
Note that e-invoicing doesn’t simply mean emailing a PDF invoice. Under the proposed system, invoice data will need to be exchanged directly between compatible accounting or finance systems using standardised formats.
The government believes this will help:
- Reduce errors and fraud
- Improve payment speed
- Increase efficiency
- Support better VAT compliance
Should businesses be preparing now?
Although 2029 may sound distant, businesses should not leave preparation until the final moment. Many companies will need to review:
- Accounting software compatibility
- Internal invoicing processes
- Supplier and customer systems
- Staff training and digital workflows
The government is expected to publish a detailed implementation roadmap during 2026.
Final Thoughts
Both IR35 reform and mandatory e-invoicing reflect the same long-term direction of travel: increased digital compliance and greater transparency in the UK tax system. For contractors and SMEs, the revised IR35 thresholds may offer some welcome flexibility from 2026.
At the same time, businesses should begin considering how prepared they are for the shift towards mandatory digital invoicing in 2029.
As always, reviewing your processes early is likely to make the transition significantly smoother.
If you’d like some help in understand what this means for your business , get in touch. As Peterborough accountants we’re here to explain the latest rules and help you meet the requirements for your company.
